Fair Value Measurements

9 Months Ended

Jun. 30, 2012

Fair Value Disclosures [Abstract]

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

Fair value measurements are used for the Company’s marketable securities, mortgage loans held for sale, IRLCs and other derivative instruments on a recurring basis, and are used for inventories, other mortgage loans and real estate owned on a nonrecurring basis, when events and circumstances indicate that the carrying value may not be recoverable. The fair value hierarchy and its application to the Company’s assets and liabilities, is as follows:

• Level 1 – Valuation is based on quoted prices in active markets for identical assets and liabilities. The Company’s U.S. Treasury securities are measured at fair value using Level 1 inputs.

• Level 2 – Valuation is determined from quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar instruments in markets that are not active, or by model-based techniques in which all significant inputs are observable in the market. The Company’s assets/liabilities measured at fair value using Level 2 inputs are as follows:

▪ government agency securities, corporate debt securities, foreign government securities and certificates of deposit;

▪ mortgage loans held for sale;

▪ over-the-counter derivatives such as forward sales of MBS, put options on MBS and best-efforts and mandatory commitments; and

▪ IRLCs.

• Level 3 – Valuation is derived from model-based techniques in which at least one significant input is unobservable and based on the Company’s own estimates about the assumptions that market participants would use to value the asset or liability. The Company’s assets measured at fair value using Level 3 inputs, which are typically reported at the lower of carrying value or fair value on a nonrecurring basis, are as follows:

▪ inventory held and used;

▪ certain mortgage loans; and

▪ real estate owned.

The following tables summarize the Company’s assets and liabilities at June 30, 2012 and September 30, 2011 measured at fair value on a recurring basis:

	Balance Sheet Location	Fair Value at June 30, 2012
		Level 1		Level 2			Total
		(In millions)
Homebuilding:
Marketable securities, available-for-sale	Marketable securities	$	60.7	$	223.0		$	283.7
Financial Services:
Mortgage loans held for sale (a)	Mortgage loans held for sale	—		295.1			295.1
Derivatives not designated as hedging instruments (b):
Interest rate lock commitments	Other assets	—		3.8			3.8
Forward sales of MBS	Other liabilities	—		(2.6		)	(2.6		)
Best-efforts and mandatory commitments	Other liabilities	—		(0.3		)	(0.3		)

	Balance Sheet Location	Fair Value at September 30, 2011
		Level 1		Level 2			Total
		(In millions)
Homebuilding:
Marketable securities, available-for-sale	Marketable securities	$	16.3	$	281.3		$	297.6
Financial Services:
Mortgage loans held for sale (a)	Mortgage loans held for sale	—		294.1			294.1
Derivatives not designated as hedging instruments (b):
Interest rate lock commitments	Other assets	—		3.9			3.9
Forward sales of MBS	Other liabilities	—		(4.0		)	(4.0		)
Best-efforts and mandatory commitments	Other liabilities	—		(0.9		)	(0.9		)

(a) Mortgage loans held for sale are reflected at fair value. Interest income earned on mortgage loans held for sale is based on contractual interest rates and included in financial services interest and other income.

(b) Fair value measurements of these derivatives represent changes in fair value since inception. These changes are reflected in the balance sheet and included in financial services revenues on the consolidated statement of operations.

The following table summarizes the Company’s assets at June 30, 2012 and September 30, 2011 measured at fair value on a nonrecurring basis:

		Fair Value at		Fair Value at
		June 30, 2012		September 30, 2011
	Balance Sheet Location	Level 3		Level 3
		(In millions)
Homebuilding:
Inventory held and used (a)	Inventories	$	6.6	$	26.9
Financial Services:
Other mortgage loans (a) (b)	Other assets	27.4		28.9
Real estate owned (a) (b)	Other assets	0.8		0.5

(a) The fair values included in the table above represent only those assets whose carrying values were adjusted to fair value in the current quarter.

(b) The fair values for other mortgage loans and real estate owned are determined based on the value of the underlying collateral.

The fair values of cash and cash equivalents approximate their carrying amounts due to their short-term nature. The Company determines the fair values of its senior and convertible senior notes based on quoted market prices of recent transactions, which is classified as Level 2 within the fair value hierarchy. The aggregate fair value of these notes at June 30, 2012 and September 30, 2011 was $2,333.2 million and $1,668.1 million, respectively, compared to an aggregate carrying value of $1,943.5 million and $1,582.4 million, respectively. The aggregate fair value of the Company’s senior notes includes fair values for the 2% convertible senior notes of $744.1 million and $511.9 million at June 30, 2012 and September 30, 2011, respectively, compared to their carrying values of $439.5 million and $418.1 million, respectively. For other secured notes and balances due under the mortgage repurchase facility, the fair values approximate their carrying amounts due to their short maturity or floating interest rate terms, as applicable.